The 'AAA' long-term rating on the bonds is based on a guaranty provided
by the Texas Permanent School Fund (PSF), whose bond guaranty program is
rated 'AAA' by Fitch. (For more information on the Texas PSF see 'Fitch
Affirms Texas PSF Rating at 'AAA'; Outlook Stable,' dated Aug. 5, 2015.)

The bonds are scheduled for negotiated sale November 5 . Proceeds from
the sale of the bonds will be used to refund certain outstanding
obligations for debt service savings and pay issuance costs.

The Rating Outlook is Stable.

SECURITY

The bonds are direct obligations of the district and are payable from an
unlimited ad valorem tax pledge of the district. In addition, the bonds
are secured by the PSF guaranty.

KEY RATING DRIVERS

STRONG FINANCIAL PROFILE: The district's financial profile is a positive
credit factor, characterized by large reserve levels and a consistent
record of conservative budgeting practices.

STABLE AND DIVERSE ECONOMY: The local economic climate continues to
demonstrate low unemployment, high wealth levels, and a healthy local
housing market.

HEALTHY GROWTH PROSPECTS: Housing construction continues, spurred by
major transportation arteries that facilitate access to broad labor
markets in the Houston metropolitan area. Residential development has
also led to renewed enrollment growth for which Fitch believes the
district has conservatively budgeted..

ELEVATED DEBT BURDEN: The district's overall debt levels will remain
elevated due to the area's ongoing, growth-related capital needs that
include the district's planned debt issuances. Affordability concerns
are somewhat offset by consistently strong voter approval of the
district's bond priorities. Fitch believes the debt load is manageable
due to the district's moderate carrying costs and prospects for further
tax base expansion.

RATING SENSITIVITIES

SHIFT IN FINANCIAL PROFILE: Ample financial flexibility and strong
management practices are evidenced by the district's maintenance of
solid reserves while addressing its ongoing capital needs, which is a
key credit consideration. The Stable Outlook reflects Fitch's
expectation that material change in these factors is unlikely.

CREDIT PROFILE

The district is the seventh largest school district in the state, with
enrollment at just under 73,500 in fiscal 2016. The district service
area spans a large 170 square miles in northeastern Fort Bend County
(the county; GO bonds rated 'AA+' with a Stable Outlook by Fitch), in a
rapidly growing residential and commercial sector of the Houston
metropolitan statistical area (MSA).

The district encompasses the incorporated cities of Missouri City (GOs
rated 'AA' with a Stable Outlook), Sugar Land (GOs rated 'AAA' with a
Stable Outlook), Arcola, and Meadows Place. The district also serves
portions of Richmond, Houston (GOs rated 'AA' with a Stable Outlook),
and other smaller area communities.

FURTHER ENROLLMENT AND TAX-BASE GROWTH

The district's service area is about 70% developed. Enrollment and tax
base growth moderated during the recession but both have ramped up
recently with improvement in the economy.

Average daily attendance (ADA) was essentially flat from fiscal
2010-2014. It has since grown annually by a steady 2% in fiscals 2014
and 2015 and is projected to grow comparably over the near term. Fitch
considers this realistic given recently surging homebuilding activity
within the district. Major road infrastructure currently under
construction has spurred ongoing residential development throughout the
district which should lead to continuation of student enrollment growth.

The Houston MSA economy made a robust post-recessionary recovery due in
part to the strength of the energy sector. However, Fitch believes the
recent plunge in oil prices may dampen the pace of growth over the near
term. As it is one of the state's petrochemical centers, the positive
impact of lower energy prices on that activity may serve as a partial
offset to any economic softening (see Fitch's press release, 'Oil Price
Decline Likely to Have Targeted Effect on Local Texas Economies &
Revenues,' dated Jan. 13, 2015).

Nonetheless, the county's economic momentum has not yet been affected,
due to the stability of its other employment sectors and those of the
larger Houston MSA. Data indicate that the county housing market is
performing well, with ongoing new starts and housing prices continuing
to trend up. Fort Bend County's population, which is estimated at about
685,500 in 2014, has grown by a compound average annual rate of 4% since
the 2010 census. Wealth levels of the county's population are notably
higher than those for the Houston MSA, state, and nation. The county's
average 2015 unemployment rate of 4.1% was below the state (4.4%) and
national averages (5.2%) for the same period.

The district's taxable assessed value (TAV) growth moderated during the
recession and registered only one annual dip (2.5% in fiscal 2011). TAV
for fiscal 2015 grew by a strong 11% over the previous year, which was
repeated in fiscal 2016 as TAV increased to $32.1 billion The district
historically uses a more conservative TAV estimate for planning
purposes, which we consider prudent.

Fitch believes TAV has some sensitivity to oil prices and an overvalued
housing market (see Fitch's press release, 'Boom-Bust Cities Now Among
Most Overvalued U.S. Housing Markets,' dated March 31, 2015). These
factors may dampen the growth rate over the next few years.

SOLID FINANCIAL RESERVES MAINTAINED

Positive operating margins have resulted in the accumulation of solid
general fund reserves despite the challenges posed by substantial state
funding cuts. In fiscals 2010 and 2011, the district proactively
declared financial exigency, a Texas Education Agency prerequisite for
terminating contracted employees, to eliminate 483 positions in order to
close a $22 million budget gap. These cuts along with other tight budget
constraints enabled the district to generate large surpluses over
fiscals 2010-2013.

In line with prior expectations, the district's unrestricted general
fund balance remained a strong $167 million, or a high 31% of spending
at fiscal 2014 year-end despite transferring out the year's $29 million
net surplus (equal to 6% of spending), primarily to the capital projects
fund for instructional technology improvements. Management reports the
surplus was due largely to continued austerity despite restored state
aid cuts, as well as greater than budgeted ADA.

Two percent of spending ($10 million) of the aforementioned surplus was
used to eliminate the deficit position in the district's health
insurance fund. Interim changes previously implemented and a new health
insurance provider as of January 2015 have reportedly stabilized the
fund. Management currently anticipates operating performance of the
health insurance fund to result in a healthy surplus and addition to net
assets at fiscal 2015 year-end.

Unaudited fiscal 2015 results indicate break-even general operating
performance, which remains in line with our previous expectation. The
adopted budget for fiscal 2016 reflects a modest $2.5 million deficit
(less than 1% of spending), due in part to some one-time pay-go capital
spending, a built-in $2 million contingency, and some increased
transportation costs. The year's budget funds a 2% salary increase
totalling about $9.2 million, and adds about 85 new positions to
accommodate the year's projected enrollment growth. Added spending is
bolstered by additional property tax revenue, gains in
enrollment-related state funding, and a modest 1.3% increase in per
pupil state aid in the state's proposed biennium budget (fiscals
2016-2017). Management reports actual enrollment trends have been
slightly lower than budgeted year to date, but conservative budgeting of
ADA is expected to allow the district to make up the difference.
Break-even operations are again anticipated by fiscal 2016 year-end,
which Fitch believes is reasonable given the district's historical
fiscal performance.

Despite the restoration of state funding that began in fiscal 2014, the
district remains vigilant about maintaining its solid financial cushion.
The district has adopted formal fiscal policies including: to maintain
the unassigned general fund balance at 30% of net budgeted operating
expenditures for the following year, adopt balanced budgets, and limit
the use of fund balance reserves for nonrecurring expenditures. Fitch
believes adherence to these policies provides stability for the high
credit rating.

ELEVATED DEBT BURDEN

The district's overall debt burden is down slightly given strong TAV
growth, but remains high at 8.2% of fiscal 2015 market value and $8,100
per capita. The high overall debt load includes a large number of
special districts in the area. Including this issuance, the direct debt
pay-out rate is slightly above average with 56% of principal maturing in
10 years.

Voters strongly approved a new $484 million GO bond authorization in
November 2014 in support of the first phase of the district's
prioritized capital needs. A facilities master plan (FMP) was recently
completed which identified the need for 11 new schools and facility
improvements, estimated to cost roughly $818 million.

The district has maintained a manageable debt service tax rate
(currently stable at $0.30 per $100 of TAV since fiscal 2011), well
below the attorney general's tax rate cap for new debt issuance of $0.50
per $100. The debt burden is expected to remain elevated given the large
number of special districts within the area, but carrying costs should
be manageable, assisted in part by the projected descending debt service
schedule, anticipated tax base growth, and phased approach for funding
the FMP.

Management plans to limit the tax rate impact from its new GO
authorization and to that effect, may initiate a commercial paper
program in the near term to fund its more immediate bond project cash
flow needs. Fitch believes the district's efforts to minimize the impact
on the tax rate does add incremental risk to the district's debt
profile. The district's phased approach should make the new debt
somewhat more affordable given that the estimated cost of the FMP is
only slightly less than the par amount of the district's outstanding
debt.

AFFORDABLE RETIREE COSTS

Pension and other post-employment benefit (OPEB) liabilities (largely
healthcare benefits) are limited because of the district's participation
in the state pension program administered by the Teachers Retirement
System of Texas (TRS). TRS is a cost-sharing, multiple-employer plan for
which the state provides the bulk of the employer's annual pension
contribution. Total pension and OPEB contributions made by the district
in fiscal 2014 totalled less than 1% of governmental fund expenditures.

TRS is funded at 80.5% as of its Aug. 31, 2014 valuation,, although
Fitch estimates it to be lower at 72.5% when a more conservative 7%
return assumption is used. The district's annual contribution to TRS is
determined by state law as is the contribution for the state-run
post-employment benefit healthcare plan; the district consistently funds
its annual required contributions. Increases in pension funding
requirements beyond the 1.5% increase for all districts in fiscal 2015,
while not presently anticipated, could create additional budget pressure.

The state's payment of district pension costs is an important credit
strength as it keeps overall carrying costs manageable despite an
elevated debt burden. Carrying costs for the district (debt service,
pension, OPEB costs, net of state support) were moderate at 13% of
governmental fund spending in fiscal 2014 and are expected to remain
manageable given the slowly descending debt service schedule currently
projected after reaching maximum annual debt service in fiscal 2016.

TEXAS SCHOOL FUNDING LITIGATION

A Texas district judge ruled in August 2014 that the state's school
finance system is unconstitutional. The ruling, which was in response to
a consolidation of six lawsuits representing 75% of Texas school
children and was the second such ruling in the past two years, found the
system inefficient, inequitable, and underfunded. The judge also ruled
that local school property taxes are effectively a statewide property
tax due to lack of local discretion and therefore are unconstitutional.

The Texas attorney general has appealed the judge's latest ruling to the
state supreme court. If the state school finance system is ultimately
found unconstitutional, the legislature would likely follow with change
intended to restore its constitutionality. Fitch would consider any
changes that include additional funding for schools and more local
discretion over tax rates to be a credit positive.

In addition to the sources of information identified in Fitch's
Tax-Supported Rating Criteria, this action was additionally informed by
information from Creditscope, IHS Global Insight, Bond Counsel, and the
Municipal Advisory Council of Texas.

Fitch recently published an exposure draft of state and local government
tax-supported criteria (Exposure Draft: U.S. Tax-Supported Rating
Criteria, dated Sept. 10, 2015). The draft includes a number of proposed
revisions to existing criteria. If applied in the proposed form, Fitch
estimates the revised criteria would result in changes to fewer than 10%
of existing tax-supported ratings. Fitch expects that final criteria
will be approved and published by Jan. 20, 2016. Once approved, the
criteria will be applied immediately to any new issue and surveillance
rating review. Fitch anticipates the criteria to be applied to all
ratings that fall under the criteria within a 12-month period from the
final approval date.

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND
DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING
THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS.
IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE
AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'.
PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS
SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS
OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES
AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF
THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE
RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR
RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY
CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH
WEBSITE.